Sweet, bitter tale of Mumias

Ten years of mismanagement, plunder of resources and tax evasion push Kenya’s largest sugar producer to it’s deathbed

Once considered a massive success story, Mumias Sugar Company now stands as a pale shadow of her vibrant past, weighed down by years of mismanagement and plunder of resources.

With the latest scandal exposed by Capital Markets Authority on Wednesday where Sh3 billion could have been lost through a sales discounts racket there are no happy faces at what used to be Kenya’s largest and most successful sugar company.

As shareholders digest news of the scandal, the mills no longer crush cane as thousands of farmers and employees remain a dejected lot, while the firm chokes in debts.

The consequences of Mumias Sugar Company (MSC) collapsing will be devastating to western Kenya and national economy.

At its peak, MSC produced more than 350, 000 tonnes of the commodity annually compared to 600, 000 tonnes produced by other millers.

Contracted farmers

Thus considering the fact that the other State-owned mills are also tottering on theedge, the country risks losing billions in foreign exchange as Kenya turns into a net importer of the commodity.

Equally, hit hard are employees who have not been paid for the last 11 months while contracted farmers are claiming more than Sh800 million owed over the last five years.

The Nairobi Securities Exchange (NSE) listed company has literally been surviving on government bailouts approximated at Sh4 billion.

The dwindling fortunes have had a direct knock-on effect to the economy of Mumias town and the farming community in the neighbourhood. Not spared are thousands of traders in the national distribution chain, and suppliers of various goods and services.

And if that is not all, the firm’s financial crisis deepened further yesterday after Kenya Revenue Authority announced it had slapped the institution with a Sh1.1 billion Value Added Tax charge. (See story below).

This comes even as the country faces a sugar glut following excessive importation jeopardising the very survival of local millers.

But where did the rain start beating Mumias? Firstly, the company’s chequered history indicates that it is the only State sugar company that had not posted losses in any financial year all the way from 1976, when it began operation, to 2002.

However, it could have crossed the Rubicon after powerful forces started opposing continued stay of management firm Booker Tate Management Group Plc of London.

People Daily learnt from Mumias Sugar immediate former chairman, Dan Ameyo, that the management group set a firm foundation for the company’s success.

Booker Tate had adopted a model that benefitted both the farmer and the miller. In the arrangement, farmers contracted to Mumias under umbrella body Mumias Outgrowers Company (Moco) would supply cane to the miller.

These activities were provided to farmers as soft loans which would then be recovered from the proceeds after harvesting cane.

Apart from Moco, farmers had formed a Sacco— Mosacco (Mumias Outgrowers Savings and Credit Company) — which provided banking services to farmers. These were three vibrant organisations which mutually benefitted farmers and shareholders.

MSC was the first sugar company in the world to have a nucleus estate of sugarcane with contracted smallholder outgrowers to supply cane.

Amayo says the firm’s success was based on good rapport between farmers and the management company which managed a multi-billion shilling Sugarcane Development Fund forfarmers.

It was because of this sterling performance over the decades that led to its privatisation and listing at the Nairobi Stock Exchange in 2002 through an Initial Public Offer.

By then Mumias Sugar had contracted more than 70,000 cane farmers. It had also constructed an ultra-modern Sh3 billion diffuser technology sugar processing factory. It had a capacity to process 8,000 tonnes of cane per day and produce more than 350,000 tonnes of sugar annually. Mumias also boosted its electricity production and sales to the national grid besides crafting plans to start ethanol production facility among many other projects.

Though trouble had been brewing for some time, it erupted into a fierce battle when the renewal of Booker Tate’s contract in 2000 hit a snag and new management took over in 2002.

According to the immediate former Kenya Sugarcane Growers Association (KESGA) chairman, Ibrahim Juma, the new management entered into many new ambitious projects whose costs were highly inflated.

“It is from this time that the company started incurring huge debts. The worst move was to demoralise sugarcane farmers through delayed payments and collapse of the sugarcane development programmes.”

Juma says that coupled with sugar baronsrepackaging cheap sugar imports as Mumias sugar and cane poaching by rival millers made the situation dire.

Ameyo says while Mumias was spending an estimated Sh30 billion on sugarcane development programmes under the new management, the initiative collapsed forcing them to outsource personnel to supervise the same.

“There was a sustained systematic undermining of the powerful farmers entities like Moco whose reserve funds were held for farmers by MSC.Between Sh2.7 billion and Sh5 billion mysteriously went missing. Moco and Mosaco were literally destroyed,” he says.

Not accounted

The former chairman says overcharging of cane transportation and ploughing of the farmers’ lands were also a major hindrance to growth.“Farmers were also being overcharged and were suddenly supplied with adulterated fertiliser and farm inputs”.

It also emerged that the company’s mill “B” was sold to a rival miller and proceeds not accounted for.

Exaggerated investments in processing, packaging and selling of bottled water and ethanol production facility at Mumias also led to loss of hundreds of millions of shiilings.

Inflated construction of the company’s sugarcane weigh bridges in Kakamega, Busia and Bungoma counties, and construction of the Shibale factory road were other projects that bled MSC.

The outgoing chairman also says rampant corruption intendering, procurements, supplies and marketing contracts and many suspect business deals involving billions of shillings played a big part that could sink the miller.

Capital Markets Authority has already raised a alert on the possible loss of Sh3.1 billion in suspect discount deals to select customers between 2006 to 2016.

According to investigations, the discounts are said to have been a scheme to fraudulently embezzle funds by under-billing specific customers who then made “kick-back” deposits in specific bank accounts for distribution amongst senior managers in the deal.